Finished on 11/3/17 in Brisbane, Australia.
"Nations fail today because their extractive economic institutions do not create the incentives needed for people to save, invest, and innovate. Extractive political institutions support these economic institutions by cementing the power of those who benefit from the extraction. Extractive economic and political institutions, though their details vary under different circumstances, are always at the root of this failure. In many cases, for example, as we will see in Argentina, Colombia, and Egypt, this failure takes the form of lack of sufficient economic activity, because the politicians are just too happy to extract resources or quash any type of independent economic activity that threatens themselves and the economic elites. In come extreme cases, as in Zimbabwe and Sierra Leone, which we discuss next, extractive institutions pave the way for complete state failure, destroying not only law and order but also even the most basic economic incentives. The result is economic stagnation -"
"An example of what could happen if you took your job too seriously, rather than successfully second-guessing what the communist party wanted, is provided by the Soviet census of 1937. As the returns came in, it became clear that they would show a population of about 162 million, far less than the 180 million that Stalin had anticipated and indeed below the figure of 168 million that Stalin himself announced in 1934. The 1937 census was the first conducted since 1926, and therefore the first one that followed the mass famines and purges of the early 1930s. The accurate population numbers reflected this. Stalin's response was to have those who organised the census arrested and sent to Siberia or shot. He ordered another census, which took place in 1939. This time the organisers got it right; they found that the population was actually 171 million."
"In fact, it is known that a major technological innovation, the introduction of a steel axe among the group of Australian Aboriginal people's known as Yir Yoront, led not to more production but to more sleeping, because it allowed subsistence requirements to be met more easily, with little incentive to work for more."
"Not everyone saw printing as a desirable innovation. As early as 1485 the Ottoman sultan Bayezid II issued an edict that Muslims were expressly forbidden from printing in Arabic. This rule was further reinforced by Sultan Selim I in 1515. It was not until 1727 that the first printing press was allowed in the Ottoman lands. Then Sultan Ahmed III issued a decree granting Ibrahim Müteferrika permission to set up a press. Even this belated step was hedged with restraints. Though the decree noted “the fortunate day this Western technique will be unveiled like a bride an will not again be hidden,” Müteferrika’s painting presses going to be closely monitored. The decree stated:
"so that the printed books will be free from printing mistakes, the wise, respected and meritorious religious scholars specialising in Islamic law, the excellent Kadi of Istanbul, Mevlana Ishak, and Selaniki's Kadi, Mevlana Sahib, and Galata’s Kadi, Mevlana Asad, may their merits be increased, and from the illustrious religious orders, the pillar of the righteous religious scholars the Sheykh of the Kasim Pasa Mevlevihane, Mevlana Musa, may his wisdom and knowledge increase, will oversea the proofreading.”
Müteferrika was allowed to set up a printing press, but whatever he printed had to be vetted by a panel of religious ad legal scholars, the Kadis. Maybe the wisdom and knowledge of the Kadis, like everybody else’s, would have increased much faster had the printing press been more readily available. But that was not to be, even after Müteferrika was given permission to set up his press.
Not surprisingly, Müteferrika printed few books in the end, only seventeen between 1729, the the press began to operate, and 1743, when he stopped working. Hid family tried to continue the tradition, but they managed to print only another seven books books by the time they finally gave up in 1797. Outside of the core of the Ottoman Empire in Turkey, printing lagged even further behind. In Egypt for instance, the first printing press was set up only in 1798, by Frenchmen who were part of the abortive attempt by Napoleon Bonaparte to capture the country. Until well into the second half of the nineteenth century, book production in the Ottoman Empire was still primarily undertaken by scribes hand-copying existing books. In the early eighteenth century, there were reputed to be eighty thousand such scribes active in Istanbul.
This opposition to the printing press had the obvious consequences for literacy, education and economic success. in 1800 probably only 2 to 3 percent of the citizens of the Ottoman Empire were literate, compared with 60 percent of adult males and 40 percent of adult females in England. In the Netherlands and Germany, literacy rated were even higher. The Ottoman lands lagged far behind the European countries with the lowest educational attainment in this period, such as Portugal, where probably only around 20 percent of adults cold read and write.
Given the highly absolutist and extractive Ottoman institutions, the sultan’s hostility to the printing press is easy to understand. Books spread ideas and make the population much harder to control. Some of these ideas may be valuable new ways to increase economic growth, but others may be subversive and challenge the existing political and social status quo.Books also undermine the power of those who control oral knowledge, since they make that knowledge readily available to anyone who can master literacy. This threatened to undermine the existing status quo, where knowledge was controlled by elites. The Ottoman sultans and religious establishment feared the creative destruction that would result. Their solution was to forbid printing."
"The last emperor of Ethiopia, Ras Tafari, was crowned Haile Selassie in 1930. Haile Selassie ruled until he was overthrown by a second Italian invasion, which began in 1935, but he returned from exile with the help of the English in 1941. He then ruled until he was overthrown in a 1974 coup by the Derg, “the Committee,” a group of Marxist army officers, who then proceeded to further impoverish and ravage the country. The basic extractive economic institutions of the absolutist Ethiopian empire, such as gult and the feudalism created after the decline of Aksum, lasted until they were abolished after the 1974 revolution.
Today, Ethiopia is one of the poorest countries in the world."
"By the 1850s, Australia had introduced adult white male suffrage. The demands of the citizens, ex-convicts and their families, were now far ahead of what William Wentworth had first imagined. In fact, by this time he was on the side of conservatives insisting on an unelected Legislative Council. But just like Macarthur before, Wentworth would not be able to halt the tide toward more inclusive political institutions. In 1856 the state of Victoria, which had been carved out of New South Wales in 1851, and the state of Tasmania would become the first places in the world to introduce an effective secret ballot in elections, which stopped vote buying and coercion. Today we still call the standard method of achieving secrecy in voting in elections the Australian ballot."
"The initial circumstances in Sydney, New South Wales, were very similar to those in Jamestown, Virginia, 181 years earlier, though the settlers at Jamestown were mostly indentured labourers, rather than convicts. In both cases the initial circumstances did not allow for the creation of extractive colonial institutions. Neither colony had dense populations of indigenous peoples to exploit, ready access to precious metals such as gold, silver, or soils and crops that would make slave plantations economically viable. The save trade was still vibrant in the 1780s, and New South Wales could have been filled up with slaves had it been profitable, but it wasn’t. Both the Virginia Company and the soldiers and free settlers who ran New South Wales bowed to the pressures, gradually creating inclusive political institutions. This happened with even less of a struggle in New South Wales than it had in Virginia, and subsequent attempts to put this trend into reverse failed."
"Rich nations are rich largely because then managed to develop inclusive institutions at some point during the past three hundred years. These institutions have persisted through a process of virtuous circles. Even if inclusive only in a limited sense to begin with, and sometimes fragile, they generated dynamics that would create a process of positive feedback, gradually increasing their inclusiveness. England did not become a democracy after the Glorious Revolution of 1688. Far from it. Only a small fraction of the population had formal representation, but crucially, she was pluralistic. Once pluralism was enshrined, there was a tendency for the institutions to become more inclusive over time, even if this was a rocky and uncertain process.
In this, England was typical of virtuous circles: inclusive political institutions create constraints against and usurpation of power. They also tend to create inclusive economic institutions, which in turn make the continuation of inclusive political institutions more likely.
Under inclusive economic institutions, wealth is not concentrated in the hands of a small group that could then use its economic might to increase its political power disproportionately. Furthermore, under inclusive economic institutions there are more limited gains from holding political power, thus weaker incentives for every group and every ambitious, upstart individual to try and take control of the state. A confluence of factors at a critical juncture, including interplay between existing institutions and the opportunities and challenges brought by the critical juncture, is generally responsible for the onset of inclusive institutions, as the English case demonstrates. But once these inclusive institutions are in place, we do not need the same confluence of factors for them to survive. Virtuous circles, though still subject to significant contingency, enable the institutions’ continuity and often even unleash dynamics taking society toward greater inclusiveness.
As virtuous circles make inclusive institutions persist, vicious circles create powerful forces toward the persistence of extractive institutions. History is not destiny, and vicious circles are not unbreakable, as we will see further in chapter 14. But they are resilient. They create a powerful process of negative feedback, with extractive political institutions forging extractive economic institutions, which in turn create the basis for the persistence of extractive political institutions. We saw this most clearly in the case of Guatemala, where the same elite held power, first under colonial rule, then in independent Guatemala, for more than four centuries; extractive institutions enrich the elite, and their wealth forms the basis for the continuation of their domination.
The same process of the vicious circle is also apparent in the persistence of the plantation economy in the U.S. South, except that it also showcases the vicious circle’s great resilience in the face of challenges. U.S. southern planters lost their formal control of economic and political institutions after their defeat in the Civil War. Slavery, which was the basis of the plantation economy, was abolished, and blacks were given equal political and economic rights. yet the Civil War did not destroy the political power of the planter elite or its economic basis, and they were able to restructure the system, under a different guise but still under their own local political control, and to achieve the same objective: abundance of low-cost labor for the plantations.
This form of the vicious circle, where extractive institutions persist because the elite controlling them and benefiting from them persists, is not its only form. At first a more puzzling, but no less real and no less vicious, form of negative feedback shaped the political and economic development of many nations, and is exemplified by the experiences of much of sub-Saharan Africa, in particular Sierra Leone and Ethiopia. In a form that the sociologist Robert Michels would recognise as then iron law of oligarchy, the overthrow of a regime presiding over extractive institutions heralds the arrival of a new set of masters to exploit the same set of pernicious extractive institutions.
The logic of this type of vicious circle is also simple to understand in hindsight: extractive political institutions create few constraints on the exercise of power, so there are essentially no institutions to retain the use and abuse of power by those overthrowing previous dictators and assuming control of the state; and extractive economic institutions imply that there are great profits and wealth to be made merely by controlling power, expropriating the assets of others, and setting up monopolies.
Of course, the iron law of oligarchy is not a true law, in the sense that the laws of physics are. It does not chart an inevitable path, as the Glorious Revolution in England or the Meiji Restoration in Japan illustrate.
A key factor in these episodes, which saw a major turn toward inclusive institutions, was the empowerment of a broad coalition that could stand up against absolutism and would replace the absolutist institutions by more inclusive, pluralistic ones. A revolution by a broad coalition makes the emergence of pluralistic political institutions much more likely. In Sierra Leone and Ethiopia, the iron law of oligarchy was made more likely not only because existing institutions were highly extractive but also because neither the independence movement in the former nor the Derg coup in the latter were revolutions led by such broad coalitions, but rather by individuals and groups seeking power so that they could do the extracting.
There is yet another, even more destructive facet of the vicious circle, anticipated by our discussion of the Maya city-states in chapter 5. The extractive institutions create huge inequalities in society and great wealth and unchecked power for those sin control, therewill be many wishing to fight to take control of the state and institutions. Extractive institutions then not only pave the way for the next regime, which will be even more extractive, but they also engender continuous infighting and civil wars. These civil wars then cause more human suffering and also destroy even what little state centralisation these societies have achieved. This also often starts a process of descent into lawlessness, state failure, and political chaos, crushing all hopes of economic prosperity, as the next chapter will illustrate."